Outcomes-Based Funding: Lessons for Colleges and Universities

New papers show how institutions can align programs and finances to support student success

INDIANAPOLIS—Lumina Foundation today released a final round of papers exploring how public colleges and universities are responding to moves nationally by state policymakers toward the use of outcomes-based funding to boost postsecondary attainment and away from enrollment-based funding. States increasingly are using thoughtfully designed funding models to promote changes in institutional climate and culture that benefit students and society.

The latest papers focus on how institutions can align internal finances, student supports and incentives, and educational delivery to respond to funding formulas that create incentives for on-time degree completion and year-over-year increases in the numbers of students of color and at-risk students who earn degrees or other credentials. Higher education researchers and practitioners examined how one university in California is responding to the state’s increased focus on student completion, how incentives institutions offer students can affect degree completion, and how colleges and universities are using financial best practices to do better by students.

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"Lumina believes colleges and universities need a better roadmap for responding to the increased financial emphasis state policymakers are placing on students actually finishing college." – Lumina President Jamie Merisotis

“Lumina believes colleges and universities need a better roadmap for responding to the increased financial emphasis state policymakers are placing on students actually finishing college,” said Jamie Merisotis, president and CEO of Lumina Foundation. “These papers highlight how they can use tuition, financial aid, and non-financial incentives to encourage full-time continuous enrollment, which we know improves student outcomes. The papers also show how institutions can align financial resources and use data to ensure they are offering programs that lead to lifelong learning and employment.”

Emerging research suggests public funding tied to student outcomes such as on-time degree completion can lead to changes in institutional climate and behavior that benefit students. Thoughtfully designed outcomes-based funding can offer an opportunity for states to create environments in which institutions are given financial incentives to focus on fairer outcomes for all students, particularly students from low-income families.

Author Steve Boilard notes enrollment-based public funding models are poorly connected to public priorities such as increasing the numbers of students who finish their programs of study, especially among students of color. He recommends that state policies reinforce the largely agreed-upon policy priorities of preserving college access, maintaining college affordability, and encouraging degree completion. In addition, author Nate Johnson asserts that funding formulas focusing primarily on paying for enrollments can lead to unnecessary increases in credit hour requirements as well as higher tuition while ignoring whether students end up earning credentials. Instead, states should use outcomes-based funding that creates incentives for colleges and universities to increase degree completion and also should encourage institutions to shape tuition and financial aid policies in ways that support full-time, continuous enrollment and on-time degree completion.

Many institutions are aware of policymakers’ increasing emphases on program completion. California has not yet implemented outcomes-based funding, but author José Cruz describes how Cal State-Fullerton has responded to an increased focus by state policymakers on degree completion and related policy signals that funding increasingly will be linked to student success. Cruz explains how anticipating bigger changes ahead has led the Cal State campus to reassess programs and interventions it relies on to ensure students succeed. Such efforts are grounded in the idea that funding oriented toward improving student outcomes can effectively drive broad-scale adoption of student success-centered priorities, policies and interventions.

As outlined by author Linda Kosten, Responsibility-Centered Management, or RCM, can help universities more closely align internal incentive structures to those of policy-driven, state-level outcomes-based funding formulas. This is accomplished using RCM to aid deans, department chairs, and faculty members in understanding the effects of outcomes-based funding at the college, school, and department levels. Further, within community colleges, author John Dorrer explores how these institutions, which are preparing people for work and lifelong learning, can use real-time labor market information to effectively allocate public funding. Real-time data on job postings and sought-after knowledge and skills, which can be analyzed years before they show up in official government reports, can help shape decisions about specific program and course offerings, ensuring students are ready for both work and life. The Texas State Technical College system—as described in an earlier paper in this Lumina series—is an example of how an institution has leveraged multiple sources of real-time labor data to better align its programmatic offerings and job placement opportunities.

About Lumina Foundation: Lumina Foundation is an independent, private foundation in Indianapolis that is committed to making opportunities for learning beyond high school available to all. We envision a system that is easy to navigate, delivers fair results, and meets the nation’s need for talent through a broad range of credentials. Our goal is to prepare people for informed citizenship and for success in a global economy.

Lumina Foundation is an independent, private foundation in Indianapolis that is committed
to making opportunities for learning beyond high school available to all. We envision a system
that is easy to navigate, delivers fair results, and meets the nation’s need for talent through a
broad range of credentials. Our goal is to prepare people for informed citizenship and for success in a global economy.